Bank of England warns mortgage defaults will rise in coming months | Mortgage arrears

The number of mortgage defaults is expected to rise in the coming months, according to Bank of England data released on Thursday, while the number of new loans will continue to fall amid warnings that “the era gold” of cheap transactions is coming to an end.

The UK central bank’s latest quarterly credit conditions survey paints a bleak picture, with the number of mortgage transactions already falling ahead of the Chancellor’s September 23 mini-budget.

Kwasi Kwarteng’s unfunded tax cut package has wreaked havoc on homebuyers, with hundreds of fixed rate offers withdrawn in the space of days, before lenders came back with offers much more expensive.

Lenders surveyed by the Bank said the availability of secured credit to households, namely mortgages, had declined in the three months to the end of August, and further declines are expected over the next three months until End of november. The data, which was collected before the mini-budget, revealed a similar picture for unsecured personal loans and credit card borrowings.

The availability of credit to businesses of all sizes remained unchanged in the third quarter, but is expected to deteriorate in the current quarter.

Mortgage rates have soared: the average two-year fixed mortgage hit 6.46% this week, the highest since the 2008 financial crisis, while the average five-year contract was 6.28%, according to Moneyfacts.

“We are at the end of the golden age of cheap mortgages and with further interest rate hikes seemingly imminent, home ownership is set to become more expensive for many in the property ladder and those who reach the first rung,” said Myron. Jobson, a senior personal finance analyst at the Interactive Investor investment platform.

Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, tweeted“The Bank of England’s credit conditions survey shows that lenders were preparing to tighten access to mortgages even before the mini-budget. But the mini-budget has dramatically accelerated the pace of deterioration. Good luck to anyone refinancing at this time.

The Bank’s survey also showed that default rates on mortgages rose slightly between July and September and are expected to increase further between October and December, while defaults on credit cards and other unsecured loans are also expected. increase as pressure on household finances from the cost of living intensifies.

Jobson said: “This is a worrying sign that finances are stretched and financial resilience is being tested like never before among many who rely on loans and plastic.

“The new data supports the findings of various house price indices that demand for buying homes in the UK has waned and should ease as house prices remain stubbornly high and mortgage rates have risen to lows. levels we haven’t seen since before the financial crisis.- prices much out of the real estate market.With the continued mismatch of supply and demand in real estate supporting house prices, the victim immediate response to rising mortgage rates could be transactions rather than house prices.

However, home values ​​are expected to fall eventually. Some analysts, including Capital Economics, expect UK house prices to fall by 15-20% next year.

The Royal Institution of Chartered Surveyors has warned homeowners will struggle to meet their mortgage payments and foreclosures will rise next year as Britain’s 13-year property market boom comes to an end.

Buyer demand – judged by requests for homes for sale on Zoopla – has fallen by more than a fifth in the past two weeks since the mini-budget sent mortgage rates skyrocketing, the site reported. Real estate website. He said: “Mortgage rates were expected to rise 4% to 5% in 2022 before the mini budget.

“That, combined with the rising cost of living, was starting to weaken demand for homes over the summer months. The fallout from the mini-budget has effectively added another 1% to mortgage rates, which are now stabilizing around the 6% mark. This increase represents a 25-30% decline in the purchasing power of homebuyers using a mortgage. »

The commercial real estate market will also be affected. Goldman Sachs predicts prices will fall between 15% and 20% between June this year and the end of 2024, saying developers will struggle due to a sharp rise in borrowing costs.

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